By Bob Willis and Shobhana Chandra June 2 (Bloomberg) -- The number of contracts to buy previously owned homes climbed in April as Americans took advantage of the last month of a tax credit. The index of pending home resales rose 6 percent, exceeding the median forecast of economists surveyed by Bloomberg News, following a revised 7.1 percent gain in March, the National Association of Realtors said today in Washington. The gauge reached the highest level since October. A plunge in mortgage applications signals sales will soften in subsequent months following the April 30 deadline to sign contracts and obtain as much as $8,000 in government assistance. Any sustained recovery in housing hinges on maintaining stability in financial markets and gains in employment in the wake of the European debt crisis. “This is the last hurrah for the housing market for a while,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who correctly forecast the increase in pending sales. “There will be a temporary hangover that will last a few months. The recovery will be a slow process that will take a few years.” Stocks extended earlier gains after the report. The Standard & Poor’s 500 rose 0.8 percent to 1,079.36 at 10:20 a.m. in New York. The S&P Supercomposite Homebuilding Index climbed 1.4 percent to 265.75. Exceeds Forecast Sales were projected to rise 5 percent in April after an originally reported gain of 5.3 percent in March, according to the median of 40 forecasts in the Bloomberg survey. Estimates ranged from a 3 percent drop to an increase of 10 percent. Three of four regions saw an increase, today’s report showed. That included a 30 percent jump in the Northeast, a 7.5 percent rise in the West and a 4.1 percent gain in the Midwest. Pending purchases declined 0.6 percent in the South. Compared with April 2009, pending sales were up 25 percent. The tax credit for first-time homebuyers, which helped fuel a rebound in demand last year, was extended in November and expanded to include some current owners. It required buyers to sign contracts by the end of April and close by June 30. Pending home resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in the Realtors’ existing-home sales report. April Sales Sales of existing homes, which account for about 90 percent of the housing market, rose 7.6 percent in April to the highest level in five months, the Realtors’ group reported May 24. Demand may keep rising through June, the deadline to close a deal and receive the tax credit. New-home purchases, which make up the rest of the market and are tabulated when a contract is signed, jumped 15 percent in April after surging 30 percent the prior month, Commerce Department figures showed on May 26. A report today showed loan applications for home purchases dropped last week to the lowest level since April 1997, according to figures from the Mortgage Bankers Association. Americans with jobs and good credit can take advantage of more than a tax credit. Average home prices were down 31 percent in March from their July 2006 peaks, according to the S&P/Case Shiller 20-city index, and 30-year mortgage rates are near record lows on concern the European debt crisis may slow global growth. Mortgage Rates The rate on a fixed 30-year mortgage fell to 4.78 percent in the week ending May 26, according to Freddie Mac. The rate reached a record-low 4.71 percent in December. Mortgage defaults will remain a headwind for the housing industry after the expiration of the tax credit. Foreclosures may reach a record 1.1 million this year, Lawrence Yun, chief economist at the National Association of Realtors, said last week in an interview. Another 600,000 homes may change hands in so-called short sales, in which banks agree to accept less than the full value of the mortgage, he said. The tax credit brought about 1 million buyers into the market, reducing inventory and contributing to stabilization in prices, Yun said in a statement. In turn, that will help limit foreclosures, he said. Toll Brothers Inc., the largest U.S. luxury homebuilder, increased its land holdings for the first time in four years in anticipation of a recovery in the market. The number of houses under contract, but not yet sold, rose in the three months ended April 30 for the first time on a year-on-year basis since 2006, the Horsham, Pennsylvania-based company said in a an earnings statement May 26. “It appears our business has finally emerged from the tunnel and into a bit of daylight,” Chairman Robert Toll said in the statement. “The past few months’ activity has been driven by an increase in confidence among our buyers.” Part of the gains in confidence may be due to an improving labor market. Employers added jobs in May for a fifth straight month, the most successive gains since mid-2007, according to the median forecast of economists surveyed before the Labor Department’s monthly employment report June 4. To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

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